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F I S C A
L I M P A C T R E P O R T
|
SPONSOR: |
|
DATE
TYPED: |
|
HB |
|
||
|
SHORT
TITLE: |
Omnibus
Tax and Highway Bill |
SB |
5 |
||||
|
|
ANALYST: |
Taylor,
Neel, Valenzuela |
|||||
APPROPRIATION
|
Appropriation Contained |
Estimated Additional Impact |
Recurring or Non-Rec |
Fund Affected |
||
|
FY04 |
FY05 |
FY04 |
FY05 |
|
|
|
|
700.0 |
|
|
Recurring |
Weight Distance Tax
Identification Permit Administrative Fund |
(Parenthesis ( )
Indicate Expenditure Decreases)
REVENUE
|
Estimated Revenue |
Subsequent Years Impact |
Recurring or
Non-Rec |
Fund Affected |
|
|
FY04 |
FY05 |
|
|
|
|
(400.0) |
$55,900.0 |
$23,300.0 |
Rec/Non-Rec |
General Fund |
|
6,600.0 |
73,800.0 |
75,800.0 |
Recurring |
State Road Fund |
|
|
8,000.0 |
8,000.0 |
Recurring |
Other State Funds |
|
|
(2,200.0) |
11,600.0 |
Recurring |
Local Gov’t Funds |
(Parenthesis
( ) Indicate Revenue Decreases)
SOURCES OF
INFORMATION
NM
Taxation and Revenue Department (TRD)
NM
Department of Transportation (DOT)
NM Finance Authority (NMFA)
SUMMARY
Senate
Bill 5 proposes numerous changes to the
The
overall fiscal impact on the road fund is an increase of nearly $74 million in
FY05, the first full year of changes. Although
there are some significant changes in particular taxes affecting the state
general fund and local government funds, the overall fiscal impact on these
funds is limited. Presumably, this
reflects the intent of the sponsors to propose a change in the system that
approaches revenue neutrality for these entities. The relatively small, positive effect on the
general fund--nearly $56 million in FY05--includes both recurring and
non-recurring components. While the
changes in FY05 are technically recurring, they are partially offset by
recurring reductions in FY06. Most of
these simply reflect differences in the effective dates for proposed
changes. The recurring revenue
implication for the general fund is approximately $23 million.
Finally,
the numbers reported in this analysis should be considered preliminary. All impacts are reported on a full year basis
on the assumption that the Department of Finance and Administration will have
implemented accounting changes affecting the timing of revenue recognition
(GASB 34). Also, reports on some aspects
of the bill still had not been provided by state agencies, and LFC staff was
unable to review the reasoning behind this set of estimates. The report will thus be updated as material information
becomes available.
SYNOPSIS
OF BILL
Streamlined Sales Tax. The bill titles Sections 1 through 9 as the
“Sales and Use Tax Administration Act”.
The bill finds that simplified sales and use taxes will serve to
preserve and strengthen these taxes as a revenue source for state and local
government and will reduce the administrative burden on sellers. The bill allows the state, represented by the
Taxation and Revenue Department (TRD) Secretary, to participate with other
states that have sales taxes in negotiating the streamline sales tax
initiative. Implementation of the
agreement requires adoption by the state legislature. Effective date: Upon signature with two-thirds vote; if not,
February 2004.
Local
Option Compensating Tax. Section 10 defines the
“local option compensating tax”, thereby allowing municipalities and counties
to impose the compensating tax. Effective date:
Distribution
to
Local
Option Compensating Tax. Sections 12 through
15 provide for the transfer of local option compensating tax revenues which
would be collected by TRD to municipalities and counties. Section 15 determines the jurisdiction where
use of property subject to the local option compensating tax occurs. Effective
Date:
Special
Fuel Excise Tax Distribution. Section
16 reduces the percentage of special fuel excise taxes distributed to the local
government road fund from 11.11 percent to 8.7 percent. Distributions are changed to direct additional
special fuel tax revenues to the state road fund; local distributions are held
harmless. Effective Date:
Distribution
of Liquor Excise Tax. Section 17 reduces
the percentage of liquor excise tax revenues to the DWI grant fund from 34.57
percent to 12.3 percent of net receipts. This section also provides for a new
7.6 percent of net receipts distribution to municipalities. Distribution to specific municipalities is
determined by two equally weighted factors: share of the state population
living in the municipality and the share of state taxable gross receipts
attributable to the municipality.
Finally, it provides for a new distribution to counties equal to 1.4
percent of net receipts. Distribution to
specific counties is determined by the same two-factor formula used for
municipal distributions. Effective
Date:
Tax Administration
Issues.
Sections
18 through 23 address tax administration matters. Section 18 increases the minimum tax
liability threshold after which TRD must assess the taxpayer from ten dollars
($10.00) to twenty-five dollars ($25.00).
Section 19 allows taxpayers to elect the “Rules of Civil Procedures for
the District Courts” in TRD administrative hearings. Section 20 provides taxpayers with the right
to designate certain refund claims as a protective claim. A protective claim is a claim for refund
filed by someone based upon the arguments advanced by another person in a
previously filed claim that has not been resolved. TRD would not take action on the protective
claim until the previously filed claim is resolved. Section 21 and 22 change the
interest rate charged and paid by TRD on tax deficiencies and overpayments. The current 15 percent rate would be changed
to 10 percent on
Tax
Exemption on Income of Persons 65 and Older. Section 24 extends the exemption of retirement
income so that all persons aged 65 and older would be able to exempt at least
$2,500 of income. Currently, the exemption
starts at $8,000, gradually decreases at higher income levels, and ends
completely at incomes over $51,000 for married persons and $28,500 for single
persons. Applicable after
Income
Tax Filing Categories Reduced. Sections
25 through 28 eliminate the separate personal income tax tables for heads of household
and roll the head of household category into the tax tables covering surviving
spouses and married persons filing joint returns. The separate tables for head of households
imposed higher taxes on that group compared with the married individuals table. Applicable after
Low
Income Rebates Renamed; Rebate Amounts Increased. Section 29 changes the name of the “Low
Income Comprehensive Rebate” to the “Family and Individual Rebate”, expands the
table to increase the number of exemptions from 6 to 7, broadens the income
groupings, lengthens the table so that larger families with incomes between
$22,000 and $39,000 receive rebates (as income increases, family size must also
increase to be eligible) and increases the rebate amounts. The definition of modified gross income is
amended to include the value of food stamp benefits. Applicable after
Additional Exemption
Amounts. Section 30 increases the value of the
personal exemption amount for low and moderate income taxpayers up to a maximum
of $3,000 per exemption. The value of
the exemption is reduced as income increases up to a maximum amount at which
point it goes to zero. The rate of the
phased reductions is adjusted for the number of exemptions. Single individuals with adjusted gross income
less than $8,000 receive the full $3,000 exemption; the value of exemption is
gradually reduced for greater incomes, completely phasing out at $28,000. Married individuals filing joint returns with
adjusted gross income less than $18,000 receive the full $3,000 exemption; the
value of the exemption is gradually reduced at greater incomes, ending at
$48,000. Heads of households with adjusted
gross income less than $15,000 receive the full $15,000 exemption; it is
gradually reduced at greater incomes and fully phased-out at $40,000. Applicable after
Business Services Tax
Credit. Section 31 provides a new business services
tax credit which may be claimed against the state gross receipts tax, state compensating
tax and withholding tax liabilities. The
credit is equal to 0.625 percent of the value of qualified business service
expenditures, which excludes entertainment, janitorial, repair and maintenance and
any other services for which a taxpayer receives another credit. The credit may be claimed within three years
of when the expenditure was made. Effective
date:
High
Wage Jobs Tax Credit. Section 32 provides
“high wage jobs tax credit” equal to 10 percent of wages and benefits paid to
an eligible employee in a new high-wage job
up to a maximum of $12,000. To qualify, a job must pay more than $40,000 per
year in municipalities with a population greater than 40,000, and $28,000 per
year in a municipality with a population below 40,000. Also, to qualify a business must be growing,
with employment greater on the last qualifying day of the credit than the day
when the new positions were created. The
credit may be claimed for the year in which the job is created and for three
years thereafter. It can be taken
against the taxpayer’s modified combined tax liability (gross receipts tax,
compensating tax and others), personal income tax liability or corporate income
tax liability. The credit is refundable. Effective date:
Research
and Development Small Businesses Gross Receipts Deduction. Section 33 and 34 enact a new section of
statute to provide a GRT/compensating “tax holiday” for small, high tech research
businesses. Qualifying businesses are
small firms (no more than 25 employees with revenue of $10 million or less in
the prior fiscal year) that have made qualified research expenditures in the
last 12 months. Qualified research
expenditures exclude expenditures funded with grants, expenditures on property
associated with Industrial Revenue Bonds, or property received as part of the
Capital Equipment Tax Credit Act, the Investment Credit Act or the Technology
Jobs Tax Credit Act. Effective
date:
Gross
Receipts Deduction for Certain Receipts From Services Provided by Licensed
Health Care Practitioners. Section
35 provides a gross receipts tax deduction for receipts of licensed health
practitioners from payments by a managed care provider for Medicare Part C
services or commercial contract services.
Commercial contract services are services provided through a contract
with a managed care organization other than those provided to Medicare and
Medicaid patients. Licensed health care
practitioners include physicians, physician assistants, osteopathic physicians,
chiropractic physicians, doctors of oriental medicine, dentists, dental
hygienists, podiatrists, psychologists, registered nurses, licensed practical
nurses, midwives, physical therapists, optometrists, occupational therapists,
respiratory care practitioners and speech pathologists. Effective date:
Gross
Receipts Exemption for Certain Athletics Contests, Sporting Events and Concerts. Section 36 exempts receipts from ticket sales
and admission fees to boxing, wrestling, auto racing, one-time sporting events
and live concerts held at a venue capable of holding at least 2,500 persons. Effective date:
Governmental Gross
Receipts.
Section 37 expands the definition of
governmental gross receipts to include the rental of parking or docking of
vehicles, aircraft and boats. Effective date:
Compensating Tax on
Services. Sections 38 through 41 impose the state and
local compensating taxes on services from out of state businesses that have no
nexus to the state and which would have been subject to the gross receipts tax
had it occurred within the state. A
compensating tax municipal credit of one half or one quarter of one percent is
also provided, depending on the municipal compensating tax rate. Effective date for section 38:
Gross Receipts and
Compensating Taxes on Motor Vehicles. Sections
42 and 43 exempt new alternative fuel
cars from the gross receipts and compensating tax. This section relates to the motor vehicle
excise tax exemption provided for these vehicles. Absent this exemption, cars provided the
motor vehicle excise tax exemption would fall under the gross receipts and compensating
tax provisions. Effective date:
Nontaxable
Transaction Certificates (NTTCs). Section
44 changes the law associated with NTTC’s.
It eliminates the requirement that taxpayers be in possession of an NTTC
within 60 days from the date required to allow for a deduction. It also provides use of other evidence in
certain circumstances, including bankruptcy, death or an entity no longer
existing as a business. Effective
date:
Cigarette Stamps. Section 45 eliminates cigarette tax discounts
for small volumes. All cigarette tax
stamps would be sold at face value.
Effective date:
Motor Vehicle Excise Tax
Rate. Section 46 increases the motor vehicle excise
tax rate from three percent to four percent.
It establishes a minimum tax of twenty dollars ($20). Effective date:
Motor Vehicle Tax
Exemption. Section 47 provides a one-time motor vehicle
excise tax exemption for the purchase of clean, fuel efficient vehicles. Qualifying vehicles are defined as vehicles
manufactured to run exclusively on alternative fuels with a
Leased Vehicle Surcharge
Rate. Section 48 increases the surcharge on short
term leased vehicles from two dollars ($2) per day to four dollars ($4) per
day. Effective date:
Weight Distance Tax
Identification Permits Defined.
Section 49 defines a new “weight distance tax identification permit”
that is issued by TRD and identifies a vehicle as subject to the weight distance
tax. Effective date:
Weight Distance Tax
Rates. Section 50 increases weight distance tax
rates for vehicles other than buses.
Rates, which are established on a mills per mile basis for different gross
vehicle weight ranges (a mill is one thousandth of one dollar), are increased
by 42 percent. Effective date:
Bus Tax Rates. Section 51 increases
the weight distance tax rates for buses.
Rates, which are established on a mills per mile basis for different
gross vehicle weights, are increased by 42 percent. Effective date:
Weight Distance Tax
Identification Permits. Sections 52 through
54 deal with weight distance tax permit issues.
Section 52 requires vehicles subject to the weight distance tax to display
and produce on demand a weight distance tax identification permit upon passing
a port of entry. Section 53 establishes
an administrative fee for the weight distance tax identification permit. Section 54 establishes a non-reverting Weight
Distance Tax Identification Permit Administration Fund for depositing
associated revenues. Money in the fund
is earmarked to TRD to pay for the cost of issuing and administering the
permits. Effective date:
Special Fuels Tax Rate. Section 55 increases the special fuels tax
from $0.18 per gallon to $0.23 per gallon.
Effective date:
Liquor Excise Tax Rates. Section 56 increases liquor excise tax
rates. The rate on spirituous liquors is
increased from $1.60 per liter to $3.86—a 140 percent increase. The rate on beer is increased from $0.41 per
liter to $1.48—a 260 percent increase.
The rate on wine (excluding fortified wine) is increased from $0.45 per
liter to $1.13—a 150 percent increase.
Effective date:
Supplemental Local
Government Compensating Taxes. Sections
57 through 70 deal with local government supplemental compensating taxes. Section 57 authorizes municipalities to impose
a supplemental compensating tax. The
compensating tax rate would be equal to the gross receipts tax rate. Section 58 requires supplemental municipal
compensating taxes to conform to the state compensating provisions. Section 59 requires TRD to collect and distribute
the local option compensating tax revenues (adjusted for credits and refunds)
within the month in which they are collected.
Section 60 provides TRD with responsibility for administering and
enforcing the collection and distribution of the supplemental compensating
taxes. Section 61 establishes that the
tax shall be used to pay current bond obligations, new bond issues or may be
transferred to any other municipal fund once bonding obligations are met. Section 62 requires that changes to the local
option gross receipts tax be matched by changes to the compensating tax. It also automatically implements the local
option compensating tax in municipalities that have imposed local option gross
receipts taxes. Section 63 governs how
TRD is to collect and transfer the municipal local option compensating
tax. Section 64 requires entities imposing
a local hospital gross receipts tax also impose the local hospital compensating
tax. Section 65 governs TRD’s collection
and transfer of the local hospital compensating tax. Section 66 requires counties to establish a
compensating tax that parallels their gross receipts tax. Section 67 governs how TRD and collects and
transfers the county compensating tax.
Section 68 requires counties with correctional facility gross receipts
taxes to also impose a parallel compensating tax. It establishes that the tax will be governed
and used in the same manner as the corresponding gross receipts tax. Section 69 governs how TRD is to collect and
transfer the county correctional compensating tax. Section 70 provides counties with the
authority to pledge and bond correctional compensating tax revenues as they do
corresponding gross receipts tax revenues.
Effective date:
Severance Tax Rate on
Oil Production. Section 71 increases the oil and gas
emergency school tax rate on oil and carbon dioxide from 3.15 percent to 4
percent. The lower rates provided on oil
and other liquid carbons removed from natural gas at stripper wells in times of
low oil prices are increased. These
rates change from 1.58 percent to 2 percent when the value of the oil is less
than $15 per barrel; and from 2.36 percent to 3 percent if the value of the oil
is greater than $15 but less than $18. Effective date:
Tax
Administration—Request for Regulations.
Section 72 allows taxpayers or other interested parties to request TRD
regulations. Effective date:
Pari-Mutual
Tax. Section 73 eliminates the pari-mutuel tax
economic development credit and earmarks 50 percent of the resulting receipts to
the state fair for capital improvement projects other than improvements to the
casino and racetrack. Remaining revenues
are distributed to the general fund.
Effective date:
Regulatory
Fees on Promotions. Sections 74 through
79 deal with fees on athletic promotions.
Section 74 strikes the 4 percent privilege tax on promotions and
replaces it with a regulatory fee. The
fee is to be established at an amount that covers the cost of regulating the
contest, with a maximum set at four percent of total gross receipts. Section 75 directs regulatory and supervisory
fee revenues to the athletic commission fund.
Section 77 strikes the five percent tax on exhibiting live professional
contests on closed-circuit telecast or motion picture. It replaces the tax with a “supervisory fee”
in amount necessary to cover the cost of supervising the exhibition, but capped
at five percent of gross receipts. Effective
date:
Tribal
Agreements on Tribal Contests. Section
80 allows the athletic commission to enter into a cooperative agreement with
Indian nations, tribes and pueblos for the reciprocal, joint or common
direction management or control of professional contests in
Tax
Identification Cards. Section 81 modifies
the tax identification card system by requiring TRD to issue annually original
tax identification cards in sufficient for the number of motor vehicles
specified by each motor carrier.
Issuance of the card is contingent upon the motor carrier being in
compliance with weight distance tax and special fuel user permit requirements. Effective date:
Motorcycle
Registration Fees. Section 82 increases the twelve-month motorcycle
registration fees from $11 to $15. Effective
date:
Passenger
Vehicle Registration Fees. Section
83 raises passenger vehicle registration fees.
The fee for a vehicle weighing less than 2,000 pounds that has been
registered for five years or less is increased from $20 to $27; registration
fees on vehicles registered for more than five years in this weight class
increase from $16 to $21. The fee for
vehicles that weigh between 2,000 and 3,000 pounds and are five years old or
less is increased from $29 to $39; the registration fees on vehicles in this
weight category that have been registered for more than five years is increased
from $23 to $31. The registration fee
for vehicles that weigh more than 3,000 pounds and have been registered for
five years or less is increased from $42 to $56; the registration fees on vehicles in this
weight category that have been registered for more than five years is increased
from $34 to $45. Effective date:
Trailer
Registration Fees. Section 84 increases the registration for
freight trailers from $10 to $13. The
fee for utility trailers not permanently registered is increased from $5 plus
one dollar for each 100 pounds in excess of 500 pounds to $7 plus one dollar
for each 100 pounds in excess of 500 pounds.
The permanent registration fee for utility vehicles not used in commerce
is raised from $25 plus $5 for every 100 pounds above 500 pounds to $33 plus $7
for every 100 pounds above 500 pounds. Effective
date:
Truck,
Truck Tractor, Road Tractor and Bus Registration Fees. Fees for these vehicles vary by weight. Section 85 increases fees on vehicles weighing
less than 4,000 pounds from $30 to $40.
Registration fees on heavier vehicles are also increased by 33
percent. The rate on the heaviest
vehicle—those over 48,000 pounds—is increased from $129.50 to $172. The percentage of truck fee revenues flowing
to the tire recycling fund are reduced such that the fund continues to receive
the same amount of money it would have prior to the change. Effective date:
Bus
Registration Fees. Buses other than school buses and buses
operated by religious and nonprofit organizations pay the same registration fee
as trucks. Section 86 increases the bus
registration fee for school buses and religious and non-profits from $5 to $7. Effective date:
Registration
Fees for Buses Used to Transport Agricultural Workers. Section 87 increases the registration for
buses used exclusively to transport agricultural workers from $25 to $33. Effective date:
Fertilizer
Trailers. Section 88 increases the registration fee for
fertilizer trailers $5 to $7. Effective
date:
Manufactured
Home Fees. Section 89 increases the fee for the
registration of manufactured homes from $5 to $7. Effective date:
School
Bus Fees. Section 90 increases the registration fee for
school buses from $5 to $7. Effective
date:
Distribution
of Registration Fees. Section 91 adjusts
fee revenue distributions so that incremental road fund revenue flows to the
road fund and other beneficiaries are held harmless. Effective date:
Overweight
and Oversized Permit Fees. Section
92 increases oversize permit fees from $60 to $300 per year. Overweight permit fees, which are imposed on
vehicles weighing more than 86,400 pounds, are raised from $15 for a single
trip to $25 plus 4 cents for each ton mile.
The Department of Public Safety is allowed to provide rules governing
the times during which oversized and overweight vehicles or loads may be
operated. Oversized and overweight
permit revenues are distributed to the state road fund. Effective date:
Highway
Projects Infrastructure. Sections 94 through
99 of the legislation authorize the New Mexico Finance Authority (NMFA) to
issue $1.585 billion of bonds, on behalf of the State Transportation
Commission, to fund construction of 47 highways projects throughout the state,
called Governor Richardson’s Investment Partnership (GRIP). Effective date: Upon signature with two-thirds vote; if not
February 2004.
Highway
Infrastructure Fund. Section 94 amends
the statute creating the highway infrastructure fund by including authority to
use its dedicated revenue for GRIP projects, as identified in Sections 97 and
98 of this bill.
Transportation
Bonds. Section 95 defines the financing strategy for
GRIP projects.
Section 95a authorizes the State Transportation
Commission to direct and pay NMFA to issue bonds on its behalf.
Section 95b provides a $1.585 billion limit on
bond issuance for GRIP.
Section 95c authorizes NMFA to restructure
existing bonds by exchange or current or advance refunding options.
Section 95d authorizes NMFA to define the terms,
conditions and covenants of bond issue and provides discretion to NMFA to enter
into financing strategies in addition to traditional fixed-rate structures.
Requires project design life to meet or exceed bond maturities. It exempts NMFA
issued bonds from Board of Finance approval.
Sections 95e, 95f, 95g, 95h provide standard
language for issuance of tax-exempt bonds with a non-impairment clause to ensure the executive
or legislature will not divert revenues in state road fund or highway
infrastructure fund to other obligations until debt service is paid off, and
allows bond proceeds to be used to pay bonds issuance costs.
Section 95i requires NMDOT to acquire highway
construction materials from state lands, if feasible.
Section 95j requires bonds to be repaid from
unobligated federal or state transportation revenues.
Section 95k defines state transportation project
bonds by excluding those defined under Section 67-3-72, which includes revenue
bonds payable solely out of the net income to be derived from the operation of
the project, such as toll roads or bridges.
State
Road Fund Distribution. Section 96 authorizes
state treasurer to divert road revenue for payment of debt service on new
transportation bonds prior to deposit in the road fund.
Appropriation
of Bond Proceeds. Section 97 authorizes issuance of $1.585
billion of bond proceeds to be used to construct 47 projects and to improve
NMDOT facilities. It requires the NMDOT and NMFA to present the detail of the
proposed bond issuance to joint hearing of the NMFA Oversight and Legislative
Finance Committees within 30 days of commission authorization for a bond sale. It
requires unexpended or unencumbered amounts to revert to the state road fund.
Appropriation
of Bond Proceeds—Matching Funds. Section
98 authorizes issuance of $12 million of bonds for two projects in the
Temporary
Provisions. Section 99 provides language to ensure
existing bond debt is not impaired by the new issuance.
Repeals. Section 100 repeals requirement for each
power unit to pay a $5.00 annual administrative fee.
Applicability
Dates. Sections 24 through 30 apply to taxable years
beginning on or after
Effective
Dates. The effective date for sections 17, 45, 46,
48, 56, 71, 73, 82 through 91 is
The effective date for sections 11, 16, 18
through 23, 32 through 34, 36 through 38, 42 through 44, 47, 49 through 55, 72,
74 through 81, 92, 93, and 100 is
The effective date for provisions of section 35
is
The effective date of the provisions of sections
10, 12, 13, 14, 15, 31, 39, 40, 41, and 57 through 70 is
Emergency
Clause. The act takes effect immediately.
SIGNIFICANT REVENUE ISSUES
Streamlined Sales Tax. The Blue Ribbon Tax Commission (BRTC)
proposal adopted a provision allowing the state to enter the streamlined sales
initiative discussions with other states.
Participating provides the state a seat at the table; it would have a
couple of years to determine whether it wanted to formally enter into the
agreement. This initiative could
eventually lead to the state being able to collect revenue from internet
sales. Entering into the agreement would
require legislative action.
Distribution of Liquor
Excise Tax. Distributions to local governments are at
least partially provided to ensure that the overall fiscal impact for local
government from this bill is relatively neutral. TRD has estimated the distributional impacts
for counties and municipalities. These
are shown in Appendix 1.
Tax Administrative
Issues. The fiscal impact of reducing the interest
rate on tax delinquencies will be higher in later years. In FY07, the rate is reduced to the IRS rate,
which corresponds to market interest rates.
This could increase the cost in those years to more than $5 million.
Tax Exemption on Income
of Persons 65 and Older. The benefit from
this reduction is targeted to those persons with income too high to qualify for
the current exemption.
Income Tax Filing
Categories Reduced. According to TRD,
this provision would provide tax relief to 13,000 of the 140,000 families
filing taxes under the head of household option. Families in this category pay higher income
taxes than two-parent families.
Low Income Tax Rebates. The BRTC recommended changing the name to
FAIR and increasing rebate amounts as a means of targeting relief against gross
receipts taxes on food to low and moderate income families, particularly large
families. The rebates are increased to a
level sufficient to offset food taxes.
Additional Income Tax
Exemptions. The BRTC recommended increasing income tax
exemptions for low and moderate income persons and families as a means of
providing income tax relief for income groups that did not benefit from the
income tax cut passed in last year’s session.
Business Services Tax
Credit. This tax aims at providing relief against the
pyramiding involved in the gross receipts tax.
Pyramiding is the payment of tax on a base that includes other
previously paid taxes. It is of concern because it puts
Gross Receipts Tax
Exemption for Certain Athletic Contests, Sporting Events and Concerts. TRD notes that this exemption may level the
playing field for venues competing with Indian pueblos and tribal lands that
also host such activities.
High Wage Tax Credit. The fiscal impact reported in the table
reflects TRD assumptions on how many high wage jobs would be created. This estimate is based on information
regarding the number of such jobs created in a recent year. Economic forecasts suggest that the state may
experience stronger job growth in the future.
Also, an assumption that the jobs created will be similar to activity in
a prior year (which may be quite accurate given all the uncertainty) implies
that the incentive does not result in additional jobs being created. Should the incentive prove effective, the
fiscal impact (reduced general fund revenues) would be higher.
Gross Receipts Deduction
for Receipts from Services Provided by Licensed Health Care Practitioners. The proposed change would result in different
treatment of Medicaid HMO’s and commercial HMO’s. There is concern that this may become an
issue with the federal Medicaid authorities.
Compensating Tax on Out
of State Services. TRD’s fiscal impact estimate in FY05 is $10
million. This increases to $15 million
in FY06 as TRD anticipates greater knowledge and compliance with the
change. The $15 million estimate is
based on the assumed tax base. There is
some risk that this additional revenue may not be realized, especially absent
additional auditing resources. An additional
concern is that the ramping up of revenue from this source coincides with a
reduction in the effective tax rate for the state. This is because in FY06 a half percent
municipal credit is implemented.
Motor Vehicle Tax
Exemption. The fiscal impact of this legislation is
relatively muted in near future.
Technological breakthroughs could make such cars more competitive and
available later on, however. A sunset
provision may be in order. TRD suggests
another alternative to dealing with the risks would be to provide a cap on the
value of the exemption.
Weight Distance Tax
Rates. NM DOT notes that these taxes have not been
adjusted in twenty-years, and while the proposal is to increase the tax by 42
percent, inflation over that period eroded the purchasing power of the tax by
more than 70 percent. They also note that
75 to 80 percent of the tax is exported to out-of-state businesses. It should be noted, however, that many states
don’t impose a weight distance tax.
Weight Distance Tax
Identification Permits. Reform of the
permitting process is critical to TRD ability to successfully administer the
associated tax. Increased weight
distance taxes are unlikely to provide additional revenue without better enforcement.
Liquor Excise Tax Rates. TRD reports that
Severance Tax Rates on
Oil Production. TRD provided a table (see Appendix 3) comparing
Regulatory Fees on
Promotions. According to RLD and TRD the proposed fee
changes, which are designed to generate less revenue than the current tax,
could impair the Athletic commission’s ability to generate sufficient revenues
to cover costs, including the cost of administration. RLD recommends increasing the regulatory fee
to five percent.
Motor Vehicle
Registration Fees. NM DOT reports that
Significant
Transportation, Road Fund and Bond Finance Issues.
Based on bonding authority and new revenues in SB5,
the NMDOT proposes to allocate approximately $45 million per year to debt
service (principal and interest payments) for GRIP with the balance to the
state road fund operating budget. The proposal raises the following issues,
which are reviewed more completely in the fiscal implications section:
- Several revenue
options were eliminated from consideration at administration’s direction.
- Operating budget
is falling behind as debt obligates larger share of operating revenue.
- New revenue may
not be sufficient to pay for GRIP spending.
- GRIP requires
restructuring of existing debt by lengthening maturities of bonds.
- GRIP increases
total debt from $1.3 billion to almost $4 billion.
- GRIP eliminates
bond capacity for the next 20 years.
- GRIP bonds for
rehabilitation projects and low-volume overlays.
FISCAL
IMPLICATIONS BY FUND AND GOVERNMENT ENTITY
The
Fiscal Implications are summarized in table below.
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FISCAL
Based
on its current revenue, NMDOT faces severe fiscal constraints as operating and
construction costs have increased and revenues into the state road fund have
stayed relatively flat. The current fiscal picture requires the administration
and Legislature to consider new revenue options for NMDOT. According to the
department, new revenue requirements total $75 million annually, at a minimum:
Debt Service for GRIP $50 million
Fortify Operational
Budget $25 million
Revenue
Options Eliminated. The Executive
created a working group to assess the impact of the
Native American gasoline tax exemption, while a Blue Ribbon Tax Commission
assessed opportunities for increases to transportation-related taxes. The
Native American gasoline tax exemption, which according to NMDOT represents a
$15 million loss annually to the road fund, was recommended by the Executive
working group to remain unchanged. In addition, the Executive spoke
publicly about its unwillingness to
support any increase in the gasoline tax[1], despite
State Gas Diesel
Incremental
revenue in SB5 is targeted at heavy road users. According to NMDOT, 75 percent
of the diesel truck traffic originates outside of and passes through
Operating Budget
Needs. The department typically holds as many as 400
staff positions vacant. Since FY03, the state-supported construction program,
reflecting 3,000 miles of road, has not been funded. Meanwhile, according to agency officials,
construction costs increase at a 4.5 percent inflation factor and the
unit-based gasoline tax continues to lose its value when adjusted for
inflation. The incremental road fund revenue would allow the department to
boost maintenance and construction activities and fill needed positions.
Bonding Capacity
Based on New Revenue. Bond experts typically use a 1-to-10
rule-of-thumb to determine bond capacity. Given incremental revenue in SB5,
NMDOT could acquire approximately $500 million in principal. The department
proposes two additional financing strategies to achieve its $1.585 billion goal
to fund GRIP:
1. Restructure existing
12-yr debt into 20-yr maturities, providing $122 million for new debt.
2. As bonds are paid
off, use freed up cash for additional leverage.
Under these
conditions, it is feasible to acquire the debt proposed by GRIP. To support
this conclusion, NMFA ran several scenarios for the LFC, as shown in the table
below:
|
Borrowing Amount
Based on New Revenue (000s) |
||||||||
|
|
|
|
|
|
|
|
|
|
|
New Revenues |
|
12-yr Maturity |
|
16-yr Maturity |
|
18-yr Maturity |
|
20-yr Maturity |
|
|
|
|
|
|
|
|
|
|
|
No new money |
|
- |
|
800,000.0 |
|
815,000.0 |
|
875,000.0 |
|
|
|
|
|
|
|
|
|
|
|
$25 million |
|
625,000.0 |
|
1,100,000.0 |
|
1,260,000.0 |
|
1,350,000.0 |
|
|
|
|
|
|
|
|
|
|
|
$40 million |
|
1,030,000.0 |
|
1,390,000.0 |
|
1,490,000.0 |
|
1,590,000.0 |
|
|
|
|
|
|
|
|
|
|
|
$45 million |
|
1,160,000.0 |
|
1,470,000.0 |
|
1,578,000.0 |
|
1,670,000.0 |
These scenarios
portray the total bond capacity, based on a given revenue source and maturity
period. According to NMFA, this scenario would increase total debt to $4
billion, as shown in a similar table below.
|
Total Principal
and Interest Payments for GRIP
(Highway Construction) |
||||||||
|
|
|
|
|
|
|
|
|
|
|
New Revenues |
|
12-yr Maturity |
|
16-yr Maturity |
|
18-yr Maturity |
|
20-yr Maturity |
|
|
|
|
|
|
|
|
|
|
|
No new money |
|
$2.2 billion |
|
$2.7 billion |
|
$2.9 billion |
|
$3.2 billion |
|
|
|
|
|
|
|
|
|
|
|
$25 million |
|
$2.1 billion |
|
$3.2 billion |
|
$3.5 billion |
|
$3.8 billion |
|
|
|
|
|
|
|
|
|
|
|
$40 million |
|
$2.7 billion |
|
$3.6 billion |
|
$3.9 billion |
|
$4.2 billion |
|
|
|
|
|
|
|
|
|
|
|
$45 million |
|
$2.9 billion |
|
$3.7 billion |
|
$4.0 billion |
|
$4.3 billion |
|
|
|
|
|
|
|
|
|
|
The following graphic
compares the principal and interest proposed in GRIP with the current bond
program payments. The annual payments would increase to a steady level of $170
million at least through the next two decades. The capacity to take on new debt
would be virtually eliminated for the next 25 years.
Operating Budget
Condition with GRIP. Appendix 4 shows an LFC
forecast of the NMDOT operating budget over the next 20 years with GRIP. Using
a 2 percent growth factor for revenues and expenditures, the simulation
indicates, within four years, the annual
debt service payments force a reduction in the rest of the operating budget,
which is compounding for the remaining 20 years.
ADMINISTRATIVE
IMPLICATIONS
TECHNICAL
ISSUES
GRIP Project
Selection and Prioritization. In collaboration
with its District Engineers, NMDOT formulated the GRIP list from more than of
$11.4 billion of unfunded transportation needs throughout the state. GRIP
reflects the immediate, critical priorities, according to NMDOT. The
methodology used by LFC to analyze the proposed project list was first to categorize
these projects into the following three groups:
OTHER
SUBSTANTIVE ISSUES
Governor’s Top
Priorities: $ 577.8 million
Reconstruct/Rehabilitation: $
901.9 million
Overlay Projects: $ 63.6 million
The
graphic which follows displays the total
amount of GRIP funding dedicated to each highway segment. As shown, GRIP proposes
spending almost 30 percent of the funding for Interstate 40. The need is
unquestioned. However, NMDOT is funded by the federal government to manage
interstate maintenance and rehabilitation through an annual program called the
statewide transportation improvement plan (STIP). STIP, a 6-yr plan, is funded from dedicated
federal funds of $167 million/year. Aside from the imbalance of funding for
I-40, some GRIP projects duplicate planned STIP projects. As an example, one
GRIP project would reconstruct US54 from Tularosa to
POSSIBLE
QUESTIONS
One other concern is
the prioritization of low-volume roads over
higher-volume roads. A good example is seen between the $150 million for US 54
and $101 million for US 491. As the following graphic
shows, US 491 has significantly higher traffic
volumes and lower construction cost. This highway is also one of
Two additional
graphics in Appendix 5,
display the results of this analysis for the rehabilitation and overlay
projects.
One final concern
about the GRIP program is the proposal to bond for low-volume maintenance work.
The third category represents 11 overlay projects, i.e., projects traditionally
with useful lives of 5 to 7 years. SB5 contains language requiring NMDOT to
design the project life to meet or exceed the bond maturity. However, these
projects could be accommodated through either the annual STIP program or
through a fully funded state construction program. Issuing long-term debt for
short-term maintenance projects simply exacerbates the declining quality of the
transportation. The concern is applicable to several projects in the
rehabilitation/reconstruction category.
TECHNICAL
ISSUES
LFC
notes a technical issue in Section 96, page 180. The section refers to “state
transportation revenue bonds,” which is contrary to the specific term of “state
transportation project bonds” used in the previous section. In fact, state
transportation revenue bonds have a specific meaning, which refers to bonds
financed from the net income of transportation projects.
OTHER SUBSTANTIVE ISSUES
SB5
provides substantial flexibility to NMDOT and NMFA in specifying priorities and
allocating bond proceeds for these projects. Furthermore, NMFA has considerable
discretion in designing the financing strategy for the bond sales and is not
required to receive Board of Finance approval. One provision of SB5 requires
NMFA and NMDOT to present details of the bond sale to the NMFA Oversight and
Legislative Finance Committees. However,
these committees have no approval authority over the details. As an option, the
Legislature may want to consider tying bond proceeds to specific projects.
Due
to accounting changes impacting the timing of revenue recognition (i.e., GASB
34 issue), general fund reserves are now estimated to be more than $500
million, or 12 percent of recurring expenditures in FY04. This may provide an
opportunity to partially draw down on those reserves for non-recurring expenditures,
such as state road infrastructure projects.
Continuing Appropriations
This bill, in Section
94, diverts incremental revenue to the highway infrastructure fund and provides
for continuing appropriations. The LFC
objects to including continuing appropriation language in the statutory
provisions for newly created funds.
Earmarking reduces the ability of the legislature to establish spending
priorities. The Legislature may want to add the following language:
Money
in the highway infrastructure fund shall be appropriated by the legislature for
specific highway construction projects.
BT/SN/MV/yr